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* 1.4 million bpd European capacity rationalisation
threat-WoodMac
* Asia, Middle East global leaders in future capacity growth
By Ahmad Ghaddar and Laura Sanicola
LONDON/NEW YORK, July 2 (Reuters) - The collapse in oil
demand from the COVID-19 pandemic is hastening the reckoning for
those refiners already struggling as new capacity overtakes
demand, posing an existential threat to many, particularly
Europe's ageing plants.
Even before the pandemic struck, which at its height
destroyed over 20% of global oil demand, analysts expected
global refining capacity would have to rationalise, particularly
in Europe.
According to consultants WoodMac, 1.4 million barrels per
day, or around 9%, of refining capacity is under threat of
rationalisation in Europe in 2022-2023.
WoodMac declined to name specific refineries, but in a list
sent to its clients and seen by Reuters, BP's 377,000 bpd
Rotterdam refinery, Total's 102,000 bpd Grandpuits
refinery in France and Petroineos' 200,000 bpd Grangemouth
refinery in Scotland were among 11 plants mentioned.
The three companies did not immediately reply to a Reuters
request for comment.
Last week, energy trader Gunvor said it was considering
mothballing its loss-making Belgian refinery.
Goldman Sachs expects global refinery utilisation rates in
2021-2024 to be 3% lower relative to 2019, heightening
competition and eventually leading to permanent plant closures
in developed markets.
It adds a "risk weight" to capacities beyond 2021,
forecasting a 6 million bpd net capacity increase over the next
five years, around 2 million bpd below the International Energy
Agency's forecast.
" capacity now looms very large over the industry,
posing an immediate threat to the outlook for older and more
exposed operations," the IEA said in April.
European refining has seen several waves of
rationalisations, most recently in the wake of the 2008-2009
financial crisis.
"In 2023 it could well be that two-thirds of the refineries
in Europe don't make any money, or lose money on a cash basis,"
Alan Gelder VP Refining, Chemicals and Oil Markets at WoodMac
said.
Strong labour unions are making refinery closures in many
European countries difficult. Two of Europe's biggest refiners,
Total and Eni, have managed to shutdown some capacity in the
past decade, and to turn some sites into biofuel operations.
Total, having already converted its La Mede refinery into
making biofuels, is considering a second biofuel facility in
France.
Capacity on the U.S. Coast, Japan and some older, less
sophisticated sites in Asia is also under threat, WoodMac says.
"On the U.S. east coast, refiners that process lighter
sweeter grades, like Trainer and Bayway, might be in trouble,"
Kevin Waguespack, refinery consultant at Baker O'Brien said.
He added that the lack of access to cheap crude in the
northeast was the U.S. region's "Achilles heel".
"Less competitive European refineries have been in trouble
and the pandemic will put another nail in the coffin for them,"
said John Auers, a refining analyst at consultancy Turner, Mason
& Co.
"Even before the pandemic, the IMO was going to disadvantage
some refiners that made a lot of fuel oil that couldn't afford
to make upgrades," Auers said.
The International Maritime Organization (IMO) changed the
rules on shipping fuel at the start of the year so that all
ships can only burn fuel with a maximum 0.5% sulphur, unless
they have sulphur-cleaning kits.
FUTURE GROWTH
Against the backdrop of potentially shut capacity in Europe
over the next few years, other regions have been expanding with
mega refining projects that are closer to upstream production,
as in the Middle East, or closer to big demand centres, like in
Asia Pacific.
Data and analytics company GlobalData sees Asia Pacific
adding 2.7 million bpd of crude distillation capacity by 2024,
42% of the global total. The Middle East and Africa region is
expected to account for 23% and 18% of crude distillation
additions by 2024.
(Additional reporting by Ron Bousso
Editing by David Evans)
